Graph Search Wasn’t the Most Important News Regarding Facebook Inc (FB)

Last week, Facebook Inc (NASDAQ:FB) announced the graph search function that grabbed the media attention for the rest of the week. Heated debates occurred on numerous media outlets on whether this search service would impact the likes of Google Inc (NASDAQ:GOOG) and Yelp Inc (NYSE:YELP) . In the end, the stock sold off as the market isn’t as sold on the ability to monetize the service.

The leading internet social media firm had surged to a market cap approaching $70 billion based on the expectations of a big announcement whether a Facebook Inc (NASDAQ:FB) based phone, a search function, or something more exotic. While the market focused on the actual search news and all other plans to monetize existing users on the platform whether PC or mobile based, the market appears to ignore that the company is not ensured to be the social media outlet of choice in the future. In fact, MarketWatch reported on the same day that Facebook had lost 1.4 million users in early December.

Is Graph Search even a big deal?

Part of the reason for the recent ramp in the stock from $25 to $32 in the last month or so has been due to the high expectations for the news event last Tuesday. The stock has sold off after the event mainly due to the normal tendency on Wall St. to sell on the news. The other reality is that the graph search function while intriguing didn’t provide actual monetization plans.

While the analysts bullish on the supposed game changing search option unveiled by Facebook, the one lacking part of the equation is that the searchable data is too restrictive. Do users really want to be restricted to search data by Facebook friends? Do users want to know the restaurant recommendations of old High School acquaintances that they spent the previous decades avoiding after graduation?

Sure the example of looking for friends that like trail running would be neat, but Facebook Inc (NASDAQ:FB) needs to monetize it. The logical answer would be to serve up an ad for trail running shoes. Users though aren’t looking for shoes, but rather a person to share an interest. If I wanted shoes, the user would be looking to go directly to Google or maybe read reviews on Yelp if related more to a store that sells running shoes.

Active users peaking a bigger issue

The bigger issue not addressed last week was the news that Facebook lost users in early December according to SocialBakers. Upon further research, it appears that the social website actually regained those users around the holidays to only lose them in early January. See chart below: